Menu

Q E A S

Queensland Economic Advocacy Solutions

header photo


QEAS Business Update: Queensland Budget 2020-21

Earlier this year the 2020-21 Queensland Budget was cancelled due to the extremely difficult task of framing a budget with the uncertainty of COVID-19’s impact on State revenues. The freshly minted State Treasurer, the Hon Cameron Dick, has released his first Queensland Budget.

As I have stated on a number of occasions it is difficult to be overly critical of any Government in Australia at present due to the extraordinary circumstances related to COVID-19. However this is not a reason to not hold them to account.  And holding them to account in this environment is a tricky business.

With an unprecedented context, historical comparisons are not really useful.  What may prove to be the best accountability is contrasting the deterioration in Queensland’s financial position against our largest rival for business investment - NSW. However, dollar with dollar comparisons with NSW are not appropriate as their budget is significantly larger. Accordingly I have instead compared Queensland against NSW on a range of metrics as a percentage of gross state product.

Key takeaways from this budget are record deficits due to reduced revenue and increased expenditure, record debt levels and a decade high in infrastructure spend.  All of these were alluded to in the Queensland Government’s COVID-19 Fiscal and Economic Review released prior to the State Election on the 7 September. Furthermore much of this State Budget is simply the follow through on commitments made in the build-up to the 31 October State Election by Queensland Labor.  

QEAS analysis on the Queensland Budget and its implications for business and the economy is available here

QEAS Previews the Queensland Government’s 2020-21 State Budget

Earlier this year the 2020-21 Queensland Budget was cancelled due to the extremely difficult task of framing a budget with the uncertainty of COVID-19’s impact on State revenues. The Queensland Treasurer, the Hon Cameron Dick, will be releasing his first State Budget on Tuesday 1st December 2020.

This Budget will confirm actual results for 2019-20 financial year which is yesterday’s news having finished five months ago.  Most interest will be on where Queensland stand’s at the midway point of the 2020-21 financial year and across the next several years.

It is difficult to be overly critical of any Government in Australia at present due to the extraordinary circumstances related to COVID-19. However this is not a reason to not hold them to account.  And holding them to account in this environment is a tricky business.

With an unprecedented context, historical comparisons are not really useful.  What may prove to be the best accountability is contrasting the deterioration in Queensland’s financial position against our two largest rivals - NSW and Victoria who have both had recent budgets.

Below are key criteria that can be used to objectively assess how good the State Budget is for Queenslanders:

1.     What is the revised deficit for 2020-21?   

As part of the Queensland Government’s COVID-19 Fiscal and Economic Review released prior to the State Election on the 7 September the deficit for 2020-21 was projected at $8.136 billion the largest in Queensland’s history. This is largely driven by dramatic revenue reductions arising from COVID-19 and the Government’s response to the pandemic.  NSW’s deficit is predicted to be $16 billion and Victoria’s $23.3 billion. As NSW and Victoria both have much bigger budgets the best means of an apple with apples comparison is to benchmark metrics as a percentage of GSP.  NSW's deficit in 2020-21 as a percentage of GSP for example will be 2.5 per cent and Queensland’s will be in the order of approximately 2.3 per cent.

2.    What are the deficits for 2021-22 and across the forward estimates?  

It will be fascinating to see whether the Queensland Government will endeavour to whittle away at the operating deficit, trying to bring it back to surplus over the forward estimates.  This is extremely unlikely as the Queensland Government has rightly indicated now is not a time for austerity.  Victoria is not endeavouring to achieve this across their forward estimates but NSW by 2023-24 is forecasting a small $460 million deficit with hope for a surplus the following year.

3.     What is the revised level of taxation and other receipts for 2020-21?  

The domestic and global economic downturn is impacting substantially on the State’s revenue sources, as is the case in other jurisdictions. Total revenue has been revised downward across the forward estimates, with key State revenue streams (taxation, royalties and land rents, and GST) substantially lower. The Queensland Government’s COVID-19 Fiscal and Economic Review in September predicted the 2020-21, revenue to be $56.239 billion, a decrease of $5.476 billion (or 8.9%) compared with the 2019-20 MYFER forecast. 

4.     How much is Government expenditure growing by in 2020-21 and in future years and have they kept a lid on growth?  

Expenditure growth has largely proven to be the Queensland Government’s achilles heel with a significant increase in spending since the Palaszczuk came into office in 2015.  However growth occurring in 2020-21 is being justified to support the COVID-19 economic crisis. In response to the COVID-19 pandemic the Government has provided stimulus and longer-term economic recovery packages increasing General Government expenses over both 2019-20 and 2020-21.  Partly offsetting these increases are savings from public service pay rise deferrals. To support Queensland’s COVID-19 economic recovery, the Government is implementing a savings and debt plan with a target of $3 billion over four years to 2023-24. 

5.     How much is government debt rising in 2020-21 and over the forward estimates of the Budget? 

The COVID-19 Fiscal and Economic Review confirmed Queensland’s General Government Sector borrowing was estimated to be $18.376 billion more by 30 June 2021 than projected in the 2019-20 MYFER due to the COVID-19 hit on the budget. Estimates in September 2020 had Queensland’s public sector borrowing punching through the $100 billion ceiling with an estimated $102 billion in borrowings in 2020-21.  Again contrasting Queensland’s borrowings as a percentage of GSP against NSW and Victoria will be enlightening.  NSW public sector borrowings in 2020-21 are estimated at 20.4 per cent.  

6.     What are the economic and revenue forecasts for the next four financial years and are they realistic? 

COVID-19 has severely impacted economic activity across the globe and in Australia with Queensland’s key major trading partners among many countries that have been significantly impacted economically by the pandemic, with flow-on effects on the demand for Queensland’s resources exports.  Reflecting these impacts, Queensland gross state product (GSP) in September was forecast to fall in 2019-20 by 0.25% and will recommence recovering in 2020-21, rising by 0.25%.  We will need to see whether these forecasts change in any way.  NSW is predicting a 0.75 per cent reduction in their GSP in 2020-21 and Victoria a 4.0 per cent reduction.  

7.     What infrastructure projects will be announced?

As part of Queensland’s Economic Recovery Plan, the Government has committed to maintaining the current State infrastructure investment program at $51.8 billion over the four years 2019-20 to 2022-23. This remains the largest 4-year capital spend in nearly a decade. NSW’s capital expenditure in 2020-21 will track at 3.6 per cent of GSP but will fall across the forward estimates to 2.6 per cent.  I will be very interested to see how Queensland’s infrastructure spend is performing in this vitally important area.

8.     What economic and job growth initiatives will be announced? 

Given the close proximity of this budget with the State Election the economic and job growth initiatives have largely already been announced and should just be the confirmation or rearticulation of the announcements made in the weeks prior to the 31 October State Election.  

In summary, the Queensland Government prior to the State Election consistently claimed the State entered the COVID-19 crisis in a stronger position than other States. It is widely recognised that this was not the case (with Queensland lagging Victoria and New South Wales in recent years) however we will almost certainly emerge from the COVID-19 economic crisis in a stronger position.  This will certainly be the case across economic metrics and I think the gap will narrow in Queensland’s favour on financial metrics. 

In short, I predict Tuesday will confirm the following:

  • A stronger growth outlook for Queensland compared with other key States and Nationally;
  • The highest budget deficit on record and total public sector debt rapidly escalating breaking through the $100 billion celling but not dissimilar to that occurring in other States; 
  • No additional revenue measures to address an increasing budget deficit which I believe is prudent;
  • Infrastructure spend will increase and as a percentage of total economic activity will rise to 3.1 per cent in 2020-21 – the highest percentage since 20212-13; and
  • Priorities rightly being placed on health management and protecting the economy.

Key charts from the COVID-19 Fiscal and Economic Update delivered in September 2020 are provided below.  QEAS will be releasing a full budget assessment following the Treasurer’s delivery of the 2020-21 Queensland Budget on Tuesday afternoon.

QEAS Business Briefing: Queensland's COVID-19 Fiscal & Economic Review

 

Earlier this year the 2020-21 Queensland Budget was cancelled due to the impossible task of framing a budget with the uncertainty of COVID-19’s impact on State revenues. The new State Treasurer, the Hon Cameron Dick, has today released instead the Queensland Government’s Fiscal and Economic Review - an actual update for 2019-20 results and its best guess for 2020-21 estimates.

 

QEAS Business Update: Queensland's COVID-19 Fiscal & Economic Review can be found here: https://bit.ly/324YP9T

 

QEAS Business Briefing - Queensland Government's Fiscal Update - July 2020

COVID-19's impact on Queensland Government's GST & other tax receipts (payroll tax, duties etc) coupled with an increase in expenditure to support the economy has delivered the two largest operating deficits in the State's history. The 2019-20 operating result will be a $5.9 billion deficit (the MYFER in December 2019 estimate was for a $151 million surplus) and the 2020-21 operating result will be a $8.5 billion deficit (the MYFER in December 2019 estimate was a $234 million surplus). Over the two financial years this represents a turnaround of $14.8 billion for the Queensland Government.

Compared to the MYFER (in December 2019) Queensland's General Government gross borrowings will be $16.6 billion higher and reach $59.4 billion in 2020-21. Combined with GOCs Queensland's public sector debt will now surpass $100.7 billion.

These results are however broadly consistent with what I would expect for any Government tackling COVID-19. One cautionary note - in any commendable effort to find savings, the Queensland Government should be careful about cutting spend on consultancies. The same approach in 2012 hurt the economy. The Queensland Government has recognised that austerity measures would hurt the economy and I would urge them to equally recognise that a reduction in consulting services provided by the private sector would also be a brake, not to mention the fundamental importance and need for receiving expert advice to deliver Government services to the people of Queensland more effectively and efficiently.

 

QEAS Business Briefing - Australian Government's Economic and Fiscal Update - July 2020

The COVID-19 pandemic has been described as a once-in-a-century shock - placing immense pressure on Australia’s health system and economy. The outbreak of COVID-19 globally, the resulting containment measures in Australia during April and May, and now the second wave re-emerging in the southern States are having profound impacts on Australia’s economy.
 
The Government has provided support to the tune of $289 billion, equivalent to around 14.6 per cent of GDP. This action, together with large declines in taxation receipts and increases in payments, has seen a major deterioration in the Australian Government's budget position.

 
The economic and fiscal outlook remains highly uncertain and is almost impossible to predict. Controlling the spread of the virus remains a key challenge with COVID-19 infections continuing to rise - the community transmission that is now occurring in Victoria and NSW will inevitably set our recovery back. 
 
Providing economic forecasts in this environment has been likened to “wetting your finger and sticking it in the air to see which way the wind is blowing …. during a cyclone!”
 
This has been my prevailing view and hence my reluctance to provide any definitive comment to the media.  What is clear is that any economic recovery at present in Australia is a subset of our response to the COVID-19 health crisis itself. 

For a sustainable economic recovery, one of two things will inevitably have to occur: either a vaccine is found or Australia becomes so concerned with the economic fall-out that we consciously and permanently ease restrictions regardless of its implications on containing the virus. 
I certainly hope it is the first outcome not the second.

 

The Australian Government will provide further forecasts and projections over the forward estimates and medium term in the 2020-21 Budget, to be delivered on 6 October 2020. For the full QEAS business briefing click here.

 

Latest on Queensland's Labour Market - June 2020

Key points from today's release of unemployment numbers by the Australian Bureau of Statistics for Queensland include:

Queensland's unemployment rate in June 2020 fell from 7.8 per cent to 7.7 per cent and compares nationally to 7.4 per cent. Queensland's underemployment rate (those wanting more hours of work) declined from 11.9per cent to 11.2 per cent. The underutilisation rate (the best indication of unemployment at present) for Queensland is currently 18.9 per cent.

The measured improvement in Queensland's unemployment and underemployment rate are consistent with an increase in the total hours worked across all jobs in Queensland during June 2020. Total hours worked increased by 3.0% to 326.5 million hours.

Whilst Queensland employment increased by 52,935 persons during June 2020 it continues to be down by 158,381 persons compared to February 2020. In addition these numbers reflect JobKeeper payments designed to keep employees in a job. This highlights the JobKeeper scheme's continuing importance and necessity.

 

 

 

BNE's new runway provides hope and will enable Queensland's economic recovery

Sunday 12 July 2020 saw the commencement of operations for Brisbane Airport's new runway .... and what a wonderful piece of enabling infrastructure it is for Queensland.

QEAS was commissioned by the Brisbane Airport Corporation as part of its 2020 Masterplan to analyse the economic contribution of BNE's new runway. 

The new runway is an asset of national significance that will bring jobs, economic growth, tourism, export opportunities and considerable investment for both SEQ and regional Queensland. 

From the moment the first flight takes off and lands the new runway is generating economic activity for all of Queensland. The BNE new runway’s economic contribution will progressively rise over the next twenty years to $2.1 billion in direct economic contribution and $1.1 billion in 2040-41 in indirect contribution to Queensland’s economy. 

Other key statistics include:

$1.25 in every $100 in Queensland economic activity will be enabled by BNE’s new runway that in turn cascades prosperity to communities and families across Queensland.”

“One in every 50 jobs in Queensland will be enabled by BNE’s new runway operations providing Queenslanders and their families with $3.3 billion in earnings.”

As a key enabler to Queensland’s economy and catalyst for future prosperity, the new runway is essential for the whole state and offers considerable hope for Queensland’s economic recovery.

More here: https://newsroom.bne.com.au/brisbanes-new-runway-inaugurated-with-vintage-aircraft-sky-show/

BNE 2020 Masterplan: https://www.bne.com.au/corporate/projects/airport-master-plan

 

Tax reform is the antidote for Australia’s COVID-19 economic crisis

Tomorrow sadly marks the 10th year anniversary of when the Australian Government released the final report of the Ken Henry Tax Review – The Australia’s Future Tax System Review.  

This was a missed opportunity of epic proportions. Back then the key conclusion was that 115 of Australia’s 125 taxes and charges raised just 10 per cent of overall taxation revenue.  This massively inefficient and complex tax system remains today – virtually unchanged and costing jobs and business viability.

But what has changed since then is obviously the onset of a global pandemic that has seen economic activity plunge to levels not seen since the great depression in the 1930’s. Over the last few weeks when I’ve been speaking with business owners and leaders about what changes are necessary for an economic recovery - tax reform has been at or near the top of the list.

The nation's top tax reform architect, Ken Henry, recently indicated the current tax system will fail to support an economic recovery from the COVID-19 pandemic. A good question to ask then is should we be using the need to repair the economic chaos caused by COVID-19 pandemic as an initiator of fundamental tax reform.

As the saying goes, you never want a serious crisis to go to waste. It's an opportunity to do things that were previously thought of as undoable.  Much of the tax reform agenda is potentially unpopular but surely now is a time when the broader community will understand desperate actions are needed in this time of crisis.

It’s clear that the COVID-19 pandemic’s economic woes are going to worsen before improve. Crises like these force individuals and companies to change or suffer the consequences. The three tiers of government should be no different.

The current outdated tax system is incapable of efficiently and fairly raising the revenue required for future years and providing a primer for economic recovery. Australia’s and Queensland’s economy has changed forever but the tax system has not moved at the same pace.  As a result, Commonwealth and State taxes are now considered by Queensland businesses to be an inhibitor on any post COVID-19 pandemic economic recovery.  

It is widely recognised that holistic tax reform would realise a significant economic benefit to the Australian economy. At the time Ken Henry forecast his recommendations would be to increase GDP by 2 to 3 percentage points, (equivalent to $38 billion to $57 billion) and the real wage rate to increase in the range of 3 to 5 per cent. 

With this in mind undoubtedly the best way for the nation to recover from this once in a lifetime economic crisis  is for the Federal and State Governments to embrace tax reform to underwrite a business-led revival.

The 125 recommendations of the Ken Henry Tax Review are the obvious starting point and include cutting business taxes, increasing the goods and services tax and abandoning damaging state-based property stamp duties in favour of land tax.

Now is the opportunity to ensure the economic and business policy settings are squarely focused on ensuring an economic recovery agenda that also happens to lay the foundation for Australia’s and Queensland’s prosperity and standards of living well into the future.  

QEAS criteria for Australia's tax system:

  • equity - fairness in the distribution of resources between high and low income earners as well as similar tax burdens for taxpayers with similar means;
  • economic efficiency - taxation impacting neutrally on taxpayer groups and economic sectors with commercial decisions not skewed by tax considerations;
  • adequacy - tax systems raising sufficient revenue for public expenditure needs;
  • simplicity - taxpayers being able to clearly understand their obligations;
  • transparency - taxpayers understanding how and when they are paying tax, and how much tax they are paying;
  • cost - compliance and collection costs minimised; and
  • anti-avoidance - minimum incentive and potential for avoidance of taxation.

The importance of gender balance from a male economist

Whilst achieving gender balance in the workforce is often looked at with the lens of being a social issue it is undoubtedly a commercial opportunity for business, industry sectors and the economy more broadly. 

Increasing female workforce participation is key to boosting Australia’s productivity. Currently (January 2020) the workforce participation rate among those aged 15-64 years is 61.4% for women and 70.9% for men. For females to achieve the same participation rate as males in Australia there would need to be an extra 1,001,174 women in the labour force. Currently there are approximately 6.5 million women in Australia's labour force.                    

As evidenced in the above graph Australia has improved its women’s workforce participation and made encouraging progress towards reducing the gender participation gap.  This progress is, amongst other things, due to increased levels of education, changing social attitudes towards gender roles, declining fertility rates, improved access to childcare services and increased uptake of flexible working arrangements.

However, Australia still has relatively low female participation rate in comparison to many of our OECD peers (eg Iceland 77.8%, Norway 67.2% and Sweden 70.7%) and our nation’s progress has not translated into some industry sectors.  For example female participation in the construction industry is lower than any other Australian industry and has remained unchanged for a significant length of time. 

Currently the construction industry has the largest gender imbalance of any Australian industry with overall female participation sitting at approximately 13 per cent of the construction workforce with most of these women in clerical and administrative roles. This comes at a significant economic cost to the construction industry as it hampers productivity and weighs on growth.  In short it is a missed opportunity.

Benefits to the economy and industry

Achieving gender equality is important for workplaces not only because it is ‘fair’ and ‘the right thing to do,’ but because it is linked to Australia’s overall economic performance.

International evidence is unanimous, when more women participate in economic decision-making at all levels within businesses and more widely at an industry sector level, economies grow. Improving female participation particularly in leadership boosts productivity, increases economic diversification and income equality in addition to other positive outcomes.

For example:

  • UN Women found increasing the female employment rates in OECD countries to match that of Sweden, could boost OECD GDP by over USD 6 trillion. Conversely, it is estimated that gender gaps can cost economies some 15 per cent of GDP.
  • In 2012, the Grattan Institute found that if there were an extra 6 per cent of women in the workforce, Australia could add up to $25 billion, or approximately 1 per cent, to our nation’s Gross Domestic Product.
  • The Organisation for Economic Co-operation and Development (OECD) estimates that closing the gender participation gap by 75 per cent could increase growth in Australian GDP per capita from 2 per cent per annum to 2.4 per cent. 
  • Goldman Sachs & JBWere calculated that the rise in female employment since 1974 has boosted Australian economic activity by 22 per cent. 
  • Projections by KPMG indicate that if the labour force participation gap between men and women was halved, Australia’s annual GDP would increase by $60 billion in just 20 years. Our cumulative living standards would also rise by $140 billion in this time (KPMG, 2018).

Benefits to businesses at a microeconomic / company level

There exists considerable microeconomic evidence—that the financial performance of companies improves with more gender-equality in organisational roles. Improving gender balance whether by industry, occupation or level (including board level, executive level and team level) has clear economic benefits for individual businesses delivering better financial performance.

Increased organisational performance: There is significant evidence from across the globe demonstrating the positive impacts on company performance of female representation on boards, in executive management and senior leadership.  For example McKinsey found that companies in the top quartile for gender diversity on their executive teams were 21 per cent more likely to experience above-average profitability. They found that executive teams that were high-performing had more women in revenue-generating roles. Findings also indicate that companies with low representation of women were 29 per cent more likely to underperform on profitability.  

Diversity and organisational performance: Credit Suisse found that well managed diversity brings together varied perspectives, produces a more holistic analysis of company issues and spurs greater effort, leading to improved decision-making.   Men and women have different viewpoints, ideas, and market insights, which enables better problem solving, ultimately leading to superior performance at the business unit level. A gender-diverse workforce provides easier access to resources, such as various sources of credit, multiple sources of information, and wider industry knowledge. A gender-diverse workforce allows the company to serve an increasingly diverse customer base.

Enhanced ability of companies to attract talent: When workplaces are equally appealing to women and men, organisations understandably have access to a larger talent pool. Employees value positive workplace cultures and environments that offer gender equality policies and practices, flexible working arrangements and support for employees with family and caring responsibilities.

Enhanced ability of companies to retain employees: Workplace policies that support gender equality retain talented employees. Research shows that employees are more likely to remain with an organisation in which there is a proactive diversity ‘climate’ as they perceive a concrete payoff to themselves by staying in an organisation they view as fair. The costs associated with employee turnover and resulting hiring and training new employees can be high. The Australian economy is estimated to lose approximately $3.83 billion in productivity and $385 million in avoidable recruitment costs each year (PwC, 2014).

Enhanced organisational reputation: The benefits of inclusive workplaces to organisational reputation are evident - gender equality is critical to an organisation’s success and is viewed as a baseline feature of leading organisations. High performing employees are attracted to companies that have a positive reputation for promoting gender equality.

In summary benefits of greater gender balance include increased financial performance; enhanced innovation and decision making; improved customer relations and orientation; reduction of staff turnover; stronger corporate reputation; attraction of the best talent; and a higher level of employee satisfaction. 

The aggregation of these benefits to individual companies produces industry and economywide benefits. Achieving gender balance is ‘fair’ and the ‘right thing to do’ but an evidenced based approach to this issue on the economic gain is also arguably a very good way to advance progress.

The economic benefits of a Queensland 2032 Olympic and Paralympic Games

A Queensland 2032 Olympic and Paralympic Games will provide unrivalled and historic opportunity for the Sunshine State. That is the unsurprising finding from the Queensland Government’s value proposition assessment released this week.

A 2032 Queensland Olympics will showcase our State like never before as a destination driving unprecedented investment and opportunities for the State’s economy, businesses and community.

The State Government blueprint for hosting the 2032 Olympic and Paralympic Games predicts economic benefits in the billions of dollars and jobs for the next 20 years.  Initial economic estimates include:

  • The 2032 Games would be held over three venue ‘hubs’ – Brisbane, the Gold and Sunshine Coasts but will also include regional locations.  43 venues have been identified (18 are outside Brisbane);
  • The quantifiable economic benefits for Queensland have been estimated at approximately $7.4 billion;
  • The Games could have a positive impact on job creation, supporting around 130,000 direct jobs. In addition to direct jobs, there will be tens of thousands of indirect jobs supported by the Games including over 10,000 tourism induced jobs in the Games year alone;
  • The tourism and trade opportunities the Games could deliver are significant. This includes an estimated uplift of around $20.2 billion in international visitor expenditure between 2020 and 2036 and increased export opportunities of up to $8.6 billion; and
  • There are a range of qualitative social and community benefits that the Games could deliver over a potential two-decade window of opportunity including increased participation in sport and volunteering.

A Queensland Olympics bid is worthy of support from across the length and breadth of our State including from our regions.  Why? Quite simply the Games will showcase Queensland’s spectacular destinations to a global audience that will have a return on investment for decades in the area of tourism.  This will unmistakably also benefit Regional Queensland as the economic opportunity ripples across the State's 1.853 million km2.

A Queensland 2032 Olympic and Paralympic Games will leave a lasting legacy for the benefit of future generations of all Queenslanders.  

The 2032 Olympic and Paralympic Games – Value Proposition Assessment can be found here:  https://www.premiers.qld.gov.au/publications/categories/reports/assets/2032-olympic-paralympic-games-vpa.pdf

*photo from my life as a professional athlete pursuing the Olympic dream.

View older posts »